Quote from: vector76 on July 27, 2011, 01:37:07 AM

I see two things mixed together
1. a derivative system to stabilize value while someone else gets leverage, and
2. something akin to a fractional reserve banking system

I'm not sure how one ties into the other or why they must be connected.

Hyperbitcoins are leveraged and it is therefore possible for them to be underwater. The owner can walk away, presumably losing their initial bitcoin 'collateral' but it is still a default.

If a hyperbitcoin were leveraged 2:1, say if it's effectively one bitcoin plus a derivative that's long bitcoins and short USD, then if bitcoins fall to below half their value, the hyperbitcoin is worth less than zero and the owner can discard it. I don't see this as particularly unlikely since bitcoins today are less than half their high for the year.

My intention is to have the protocol sell more hyperbitcoins to speculators as bitcoin prices fall, decreasing everyone's leverage by diluting the hyperbitcoins which will also drive down hyperbitcoin prices faster than bitcoin prices (the leverage) and adding bitcoins to the escrow fund. When bitcoin prices rise, hyperbitcoins will be purchased from speculators by the protocol, increasing everyone's leverage and driving up hyperbitcoin prices faster than bitcoin prices (the leverage) using excess bitcoins from the escrow fund. I believe that by having the protocol control the hyperbitcoin supply and resulting leverage, the escrow fund can remain solvent in a sustainable way and prevent default as long as bitcoin remains a viable currency.

Quote from: jtimon on July 27, 2011, 07:45:35 AM

Dacoinminster, your idea depends on bitcoin (almost) always going up. That's what I don't like about it. In case of default, you can't print more bitcoins outside the bitcoin network, just IOUs.

vector76, what if we have the derivative contracts inside the chain an also an automated broker that liquidates/covers your position if the reserves get too low?
This way, you eliminate the default risk. If you want your position to exist longer, just put more funds in the escrow.
To make them fungible, the "additional funds" (the difference between the needed funds and the actual funds), should be returned to the seller when the oil-coin is sold. The buyer of the oil-coin can add more funds to the contract within the same transaction to avoid the contract to be liquidated because of a small change in price a block after the transaction is made.

I think it could work, but yes, you would need a counter-party in the derivative for each oil-coin issued. All contracts would be btc (or derivativecoin) denominated.

The network would rely on derivativecoin creation and/or in fees for the contracts creation and trades. The fees can be charged in bitcoins, derivativecoins or both.
There's no need to create another currency for this though. This way we could also see if fees are enough on their own.

I agree that the math is easier when bitcoin prices are going up, but I believe the protocol's control of hyperbitcoin prices and effective leverage also prevents default as described above. A more extreme situation, with panic-selling of both bitcoin and bitcoin-backed pegged-value tokens would require a more extreme response, for which I outline a couple possibilities in the first post of the sister thread: http://forum.bitcoin.org/index.php?topic=31645.0

You are correct that all currencies and commodities tracked would need a real-life counter-party (the escrow fund itself cannot be taking positions that have a net long or short position against oil/gold/Euros/etc). That is the intended function of GoldCoins vs AntiGoldCoins, etc.